Martial arts studios fight sales tax after falling enrollment

Joni Sharrah (center), owner of the USA Karate Academy in Shoreline, says her studio has lost nearly a quarter of its students after a tax on fitness centers included martial arts. (Photo courtesy USA Karate Academy via Facebook.)

In 2016, a 6.5 percent retail tax on physical fitness centers went into effect — and that included martial arts, yoga and Qigong studios. The businesses were swept up in the 2015 legislative rewording of definitions for several types of businesses covered by retail sales taxes.

The tax rippled through Washington’s martial arts world and the increasing fees led to an apparent drop in martial arts students in the state.

“Right off the bat, we lost 5 percent of our students who couldn’t afford the tax increase,” said Joni Sharrah, owner of the USA Karate Academy in Shoreline.

The Shoreline studio lost roughly 25 of its 110 students in 2016.

“We’re really coming close to the edge,” she said.

Sharrah has talked with other martial arts studios, saying they have suffered similar losses. “My situation not unique to me,” she said.

Martial arts studios tend to be small businesses that frequently keep to themselves while featuring disciplines from a wide range of origins — Korean, Japanese, Brazilian and Pacific Islanders.

Interviewed martial arts studio owners said the 2016 retail sales tax caused their memberships to significantly drop. Many families have multiple members enrolled at the same martial arts studio so the sales tax quickly added up.

“The problem is we got sort of sucked into the definition of physical fitness, said Rep Cindy Ryu , D-Shoreline.

Now Ryu — who took Tae Kwon Do years ago, following the steps of her son Cody, until age slowed her down to Tae Bo and country dance — has a bill in the Washington House Finance Committee that would remove the state sales tax requirement from martial arts, yoga and Qigong studios. The studios would be reclassified as “services” and not retail sales.

According to the fiscal note prepared by the state, the tax on martial arts, yoga and Qigong would be expected to bring in $295,000 for the state in the 2017-19 budget, which would be cut if Ryu’s bill passes.

Studio owners say they didn’t know about the tax on physical fitness centers until late 2015.

“There was no notification or engagement with the martial arts schools while the bill was in play. The bill title didn’t communicate to anyone we were on the chopping block or under scrutiny. Therefore we had no chance to make case to argue against the legislation,” wrote Karl Kanthak, owner of Kanthak Karate of Vancouver in an email.

“It’s caused a lot of people from diverse backgrounds to get together,” said Scott Browning, owner of the Vancouver Tae Kwon Do Academy.

The MKG Academy saw its membership drop from 202 students in February 2016 to 166 in May 2016. “We had a record number of cancellations,” said owner Andy Wilson.

Browning’s studio in Vancouver saw an 8 to 9 percent decrease in business last year, resulting in his business’ lowest gross revenue since 2005.

Ryu introduced the same bill in the 2016 legislative session, which passed the House 96-0, but the bill did not make it to a full Senate floor vote.

“I think the fact that many of the sponsors of the (2015) bill that started this problem are now sponsoring the corrective legislation illustrates this was an unintended result,” Kanthak wrote.

Browning is cautiously optimistic that removing the sales tax could lead to a rebound.

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2 Comments

As sales taxes are being levied on many new fronts it will at some point slow down the economy. Martial arts schools have the opportunity to swallow the tax and offer their members a discounted membership and take market share from others. This consolidation has positive effects, too.